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How you manage your accounts payable can make or break your business cash flow. Paying invoices too early means cash flows out earlier than necessary. Paying invoices too late can mean additional late fees and strained vendor relations. A/P aging reports help business owners analyze payables and make payment decisions.

Accounts Payable Basics

Accounts payable, or A/P, is the sum of amounts a company owes to vendors. When a business receives an invoice from a vendor, an A/P clerk or accounting personnel enter the invoice details into the accounting system. When a user enters an invoice, the accounting information system debits the appropriate expense and credits accounts payable, which is a liability account. For example, entering a utility bill creates a debit to utility expense and credit to accounts payable.

Managing Accounts Payable

If a business has sufficient cash on hand, it may choose to pay all bills and invoices immediately after entering them into the accounting system. However, this is not always practical or even possible. If a vendor sends an invoice before delivering the product or service, the company may want to wait to pay the bill. Bills often come at the beginning or the end of the month, any many small businesses don't always have the cash on hand to pay all bills immediately.

The A/P Aging Report

The A/P aging report is a critical tool to help business owners manage the payables process. An A/P aging report is a standard accounting report that lists accounts payable in chronological order. Users generally group accounts that are less than 30 days old, 30 to 60 days old and 90 days old. A detailed aging report includes vendor names, purchase details, purchase date, payment due date and other payment terms.

Using the Report

To optimize cash flow, business owners should run an A/P aging report and pay bills at regular intervals, such as once every two weeks. Owners typically analyze the report to pay the oldest bills and invoices due in the coming month. The A/P aging report can also alert owners of potential cash flow problems before they happen. If a manager notices that an unusually large amount will come due in the next 30 or 60 days, he has more time to manage the situation. To avoid cash crunches, the manager should contact vendors and ask about alternative payment arrangements or temporary extensions.